Why are Maruti Suzuki Cars so popular in India?

6 Oct 2020  Read 3022 Views

In the pre-independence era, when India was on the road to becoming a developed nation, it had only three car companies, Hindustan motors which was launched in 1942, followed by Premier in 1944 and Mahindra & Mahindra in 1945. 

Hindustan motors which was known for its Ambassador and Premier, which was famous for its Padmini dominated the Indian passenger cars segment with around 80% of the Market share.

The income levels of people in those times were not much, and India was yet to heal itself from the financial crunch it was going through so buying a car for a common man was not in the picture. With the passing time when India was transitioning from the Agricultural phase to the service sector, its population needed a vehicle which was cost-effective and looked modern in par with those times.  

To solve this issue, Maruti came into existence with the Government of India launching it on February 24, 1981, as Maruti Udyog Limited. To bring the cars at a level in the industry, the Company was later merged with the Japanese automobile company Suzuki in October 1982 by establishing the first factory in Gurugram the same year. 

Initially, Maruti used to import cars from its subsidiary Suzuki. Maruti got the allowance for importing 400,000 fully built up Suzuki in the initial two years of its operations and were sold in India under the name of Maruti 800. 

The major problem was that the market was too small to absorb such large production by Maruti Suzuki. The Government, later on, decided to slash down the fuel prices and reduce the excise duty in order to boost up sales. Local production started in 1983. 

Maruti Suzuki after the Liberalization of Indian Economy

After launching cars like Maruti Van, Gypsy, and Alto, Suzuki increased its stake in Maruti by 50% post liberalization of the Indian Economy in 1991. In the subsequent decade the Zen, Esteem, Maruti 800, Omni, Baleno, and Wagon R were launched In 1996 with less competition, stability, and foreign brands still trying to enter the market Maruti reigned supreme with 60% market share. Maruti 800 with 1.84 lacs cars had a 41.66% volume share. Today this pack is led by Alto in the budget hatchback segment.

Entry into another Century with the launch of new subsidiaries

In 2000, Maruti Suzuki became the first car company to launch a call centre for internal and customer services. In 2001 with the launch of True Value where buying and selling of used cars was launched. Later in 2002, two new subsidiaries were launched, Maruti Insurance Distributor Services and Maruti Insurance Brokers Limited. Suzuki also increased its stake in the firm from 50% to 54.2%. Maruti Udyog Ltd. was listed on BSE and NSE after a public issue, which was oversubscribed tenfold. In 2004, Alto became India's best selling car overtaking Maruti 800 after nearly 2 decades.

Business Model of Maruti Suzuki

The Company is a market leader in the passenger vehicle segment and exports to around 95 countries. Maruti has an annual capacity of 2.07 million units across its product portfolio and the capacity utilization of around 90% before the auto sector slowdown in India due to COVID 19. 

On the innovation front, the Company employs 1600+ R&D engineers and has 100+ patent filings with 12+ patents granted till now. The Company has a dedicated new design pipeline which also includes new models and facelifts of existing car designs.

The passenger vehicle sales contribute to 85% of the total revenue followed by spares, service, and component sales (around 12%). Recently in February, the Company stopped working on the production of Diesel cars in February 2020. 

It had around 8700+ diesel cars during that period. The sales of diesel cars contributed to around 29% of industry volume (Lowest in that year) and 20% for Maruti Suzuki. 

Post BS6, the Company expects the industry share of diesel to decline even further by 15-20%. Even for the mid-size SUV like Creta, Venue, Sonet, or Hector which have high fuel consumption, the sales of petrol variants are spiking up. Maruti Suzuki can further benefit due to its strength in Petrol. 

Even out of 49.7% of its market share, the Petrol variant constitutes around 40.1% while the share of the diesel variant is only 9.6%.    

What makes Maruti Suzuki cars a top-selling brand?

Maruti Suzuki provides the best product at a given price point. This is one of the reasons that make it the best selling car. But the main answer lies in its service ecosystem that the Company has managed to build and enhance over the years. 

Some of Maruti Suzuki's subsidiaries include

  • Maruti Driving School

The Maruti Driving school was launched in March 2005 in New Delhi. These schools offer state of the art facilities and are modeled on international standards, where learners go through classroom and practical sessions. Many international practices like road behaviour and attitudes are also taught in these schools. 

Before driving actual vehicles, participants are trained on simulators. Setting up a certain school may not crank huge money but certainly helps engage the customer well ahead of the purchasing choice. 

  • Maruti Finance and Maruti Insurance

If money is a concern for you even then, Maruti will help you with its subsidiaries Maruti Finance and Maruti Insurance so that owning a car does not cost you an arm and a leg. Launched in 2002 to promote its bottom-line growth, Maruti Finance has come effective in creating a sufficient exit barrier for the customers. 

Today, Maruti holds a partnership with all the major banks and NBFCs in order to assist its customers with the purchase of a new car.

With its finance programs, Maruti claims to offer competitive interest rates to its customers which are 0.25% to 0.5% lower than the market rates.

Launched in 2002, Maruti Insurance is a single-window for cashless accident repairs,

hassle-free services, and easy claim settlement. With a nearly 100% settlement ratio it has more than 1500 outlets in the country having served around 6.13 Crores+ customers till date. In the FY19-20 alone, it generated around 75.55 Lacs policies with over Rs. 9114 Crores of premium collected from its customers. 

  • Maruti Genuine Accessories and Maruti Genuine Parts

In the auto ancillary market which is flooded with counterfeits, used products which are installed and sold by unorganized garages and motor mechanics, Maruti Genuine Accessories and Maruti Genuine Parts have helped the company garner trust and engagement with customers. 

It offers accessories like alloy wheels, body cover, carpets, door visors, fog lamps, stereo systems, seat covers and other car care products through dealer outlets and authorized service stations throughout India. This generates a steady stream of revenues, and the customers get peace of mind while buying a genuine product.

  • Maruti Autocard

To enhance the retention of customers, Maruti Autocard was launched in 2006. It is a unique loyalty reward program designed exclusively for the Company's customers. 

Upon interaction with executives, the customer gets certain badges and points on certain transactions. Each point evaluates to one rupee in Value. Later, you can redeem the points in the form of any service or an accessory for your car. 

These programs do not burn a hole in the earnings of the Company and make customers stay loyal to the brand.

  • Maruti True Value

Maruti True Value was launched in 2001 and was one such program that looked ahead of its time. True Value helps you get a reliable and affordable choice in the second-hand market. 

One can buy, sell, or exchange Maruti or non-Maruti cars with the help of True Value. Being the first major organized player in the market, True Value has expanded its Pan India reach via a network of over 1252 outlets spread across 942 cities.

The need for NEXA

NEXA was launched for giving customers a premium buying experience. To save itself from the growing competition in the high-end cars business, Maruti Suzuki started NEXA in 2015 for its premium cars, which resulted in the delivery of products in a unique style. This makes the high-end customers get engaged with the brand. Currently, the Company sells S-Cross, XL6, Ciaz, and Ignis through NEXA outlets.

How Maruti Saves a lot in Taxation?

India has adopted the Goods and Service Tax from 2017. The taxation before that was not drastically different. Excise duty, auto cess, and VAT (12.5%+1.1%+14%) totaled to nearly 28 percent. Bigger SUVs, cars, and luxury vehicles were taxed between 42%-45%. Road Tax and Motor Vehicle Tax was a state subject and thus varied.

Problem: High GST implemented with an additional Cess, makes premium vehicles like SUV and Sedan unaffordable for common people. Let's understand how Maruti copes in this area. 

The following GST rates are thereby available: 

Tax Type

Vehicle Category

GST Rate

GST

Passenger Vehicles (Petrol, Diesel, CNG, Electric Hybrid)/Commercial Vehicles/Three-wheelers/Two-wheelers)

28%

GST

Electric Vehicles

5%

This can be further seen as investment flow into EV start-ups in 2019 (till the end of November) increased by nearly 170 percent to reach US$ 397 million. 

Further, the Government implies Cess charges on top of GST where the Passenger vehicles or hatchbacks and mid-size sedans are only applicable to 1% Cess, making it a total implied tax of 29%, whereas for large-size passenger vehicles or MUV/SUV the taxes can be as high as 48-50%. 

Such high taxes makes the affordability of premium cars in India a big issue.  

Why is tax cut important now? 

The need for the cutdown in taxes is needed now more than ever before due to the fall in sales because of the COVID-induced lockdown. The hope of the Economy going back to normalcy is diminishing, and thus the demand from consumers has also reduced. 

The Society of Indian Automobile Manufacturers (SAIM) has made certain pleas from the Government for Cut Down in GST since last year, but the tight-on-budget Government has made no move.

The Government's Stance

The Government has asked to reduce royalties payments to foreign partners to bring down costs. As per the government data, Maruti Suzuki paid 38.2 billion rupees as royalty to its Japanese parent Suzuki Motor in the fiscal year ending March 31, amounting to 5% of its revenue, according to its annual report, while Toyota's India arm paid $88 million or 3.4% of revenue to its Japanese parent.

The Government wants companies to focus on the reduction of imports of electronic auto components which are mainly sourced in China and other Asian Countries. This part stands true for steel as well. 

This major step will contribute towards Atma Nirbhar Bharat and thus would increase the sales from the Domestic market, thereby increasing the GDP.

Market share of top 10 car companies as on August 2020:

Rank

Brand

Market Share 

  (Aug 20)

Market Share 

  (Aug 19)

1

Maruti Suzuki

49.7%

46.8%

2

Hyundai

19.43%

18.9%

3

Tata Motors Ltd

7.9%

5.7%

4

Mahindra & Mahindra

5.1%

7.7%

5

Kia Motors

4.2%

0.1%

6

Renault India

3.3%

2.2%

7

Honda Motors India

2.7%

4.8%

8

Toyota Kirloskar Motors

2.6%

4.9%

9

Ford India

1.9%

2.9%

10

Skoda India

1.04%

0.6%

Source: FADA Research

Market share of top 10 car models as on August 2020:

Rank

Brand

Model

Sales in 

  (Aug 20)

Sales in  

  (Aug 19)

Growth %

1

Maruti Suzuki

Swift

14,869

12,444

19%

2

Maruti Suzuki

Alto

14,397

10,123

42%

3

Maruti Suzuki

WagonR

13,770

11,402

21%

4

Maruti Suzuki

DZire

13,629

13,274

3%

5

Hyundai

Creta

11,758

6,001

96%

6

Maruti Suzuki

Baleno

10,742

11,067

-3%

7

Kia Motors

Seltos

10,655

6,236

71%

8

Hyundai

I10 Grand

10,190

9,403

8%

9

Maruti Suzuki

Ertiga

9,302

8,391

11%

10

Maruti Suzuki

Eeco

9,115

8,658

5%

Source : FADA Research

Strengths and Weakness of Maruti Suzuki:

Strengths:

  1. Leaders in Passenger vehicles: The Company holds a leadership position in the Indian Passenger vehicles segment with a dominating market share of 49.7% as of August 2020. This has been made possible due to its initial entry into the market and updating itself with time and as per the customer needs
  2. Brand Value: Strong brand values with a loyal customer base adds to the strength of the Maruti Suzuki cars. The Company keeps its users engaged by providing them with services that many fail to compete with. Autocard remains to the cherry on the top for the Company by providing customers with loyalty points in the form of reward systems.
  3. True Value: Maruti Suzuki is the first automobile company to start the second-hand vehicle sales, purchase and exchange through its True Value entity. This enabled many customers to have a second-hand car at their budget price.
  4. Taxation: The Maruti Suzuki cars come with an engine power of less than 1200 cc and less than 4 metres in length. This makes it liable to pay less tax as that of any other major brand.
  5. Hatchback segment: The Company rules the market in the hatchback segment. Its Alto model still happens to be among the top-selling models every year since 2005. 
  6. Budget-friendly: Unlike the majority of brands which come at a premium value and their services are too costly, Maruti Suzuki cars come budget-friendly with its service pricing not digging a hole in your pocket. It's after-sales service happens to be the major contributor of revenues. Plus its low fuel consumption makes it the first choice among people.
  7. Promotional strategy: It's a good promotional strategy that helps it connect with the customers making them its priority. NEXA is one such example to make customers feel valued.
  8. Large Distribution network: With its around 3600 outlets in 1900 cities makes it a brand with a large distribution network. This makes the Company sell a car easily to its customers thereby increasing its topline.

Weakness :

  1. Failure in SUV Segment: Unlike other brands, Maruti has failed to make its place in the SUV segment, unlike other players. Though with the launch of Brezza in compact SUV it tries to top the charts. Toyota and Mahindra happen to be the first choice of SUV owners. 
  2. Labor Unions: The management is not on good terms with its labour unions. In early 2000 the labourers of Maruti Suzuki went on an indefinite strike demanding a revision to their wages, pensions, and incentives. It stopped when the central Government privatized the Company and Suzuki became the majority owner of the Maruti Udyog Limited in 2002. Again in 2012, Maruti's Manesar plant was hit by violence when the production workers attacked supervisors and started a fire that killed the Company's General Manager of Human Resources. These incidents slow down the production and ramp down the revenues of the Company.
  3. Low-quality interiors: The Maruti Suzuki cars have low-quality interiors as compared to quality products like Hyundai, Volkswagen, or Honda.
  4. Generation shift: The foreign brands like Kia have started to look appealing to younger generations, with their low prices and better features. This has disrupted the market share and revenues of the Company.
  5. International markets: Though the Company rules the Indian market but the Maruti Suzuki cars have failed drastically to penetrate the international markets.

Conclusion

The Automobile sector is worst hit by the COVID 19 situation. Due to this, people with lower income levels refrain themselves from buying luxurious cars. 

But focusing on the other side of the coin, the demand for lower and mid-price ranged vehicles is increasing. This is due to this pandemic since people have started fearing the public transportation system and the urge to own a private vehicle has increased. 

The Maruti Suzuki cars, which emerged as a budget-friendly and low-cost automobile with its superior after-sales servicing and low repair costs, have made it a number one choice among the people. Due to a good brand reputation, Maruti also happens to be the first choice for many car owners. 

During this pivotal time, Maruti finance will play a vital role in making a car accessible for many Indians. With its aggressive management and promotion strategies, demand for Maruti Suzuki cars will still rise in a short time.

About the Author: Chirag Gupta | 6 Post(s)

"The ability to observe without evaluating is the highest form of Intelligence." Following this quote Chirag is on the road to feed his huge apetite of curiousity. He is an engineering graduate who loves to conversate with technology while playing with numbers.

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